(Recasts 1st paragraph, adds Richard Li's stake in HKT Trust in the 6th paragraph, reasons for the weak response in the 7th paragraph, use of net proceeds of the IPO in the 8th paragraph.)

HONG KONG (MarketWatch) -- The initial public offering of HKT Trust & HKT Ltd. (6823.HK), the telecommunications trust spun off from PCCW Ltd. (0008.HK), drew a lukewarm response from retail investors, who subscribed to just over a tenth of the shares on offer in the deal's retail portion, according to allotment results released Monday.

The trust, which is scheduled to begin trading on the Hong Kong stock exchange Tuesday after raising US$1.2 billion in its IPO, said in a statement that 1.2% of the 2.05 billion units on offer were allocated to retail investors. The trust had originally set aside 10% of the available units for the retail tranche.

HKT Trust said the unsubscribed units of the retail tranche have been re-allocated to the institutional tranche, which amounted to 98.8% of the shares on offer following the re-allocation. It added that the institutional tranche was moderately oversubscribed, but didn't elaborate.

The offering was likely hurt by the volatility in global market conditions. Hong Kong's benchmark Hang Seng Index is down more than 9% so far this month. The Dow Jones Industrial Average has lost 7.6% over the last two weeks.

That the deal is going ahead at all, despite the jittery markets, counts as a victory for PCCW Chairman Richard Li, the younger son of Hong Kong's richest man, Li Ka-shing.

However, in an apparent indication of the headwinds the deal faced, he ended up subscribing to as much as 12.5% of the units on offer through various vehicles, far more than the less-than 3% to which he was automatically entitled as a result of his shareholding in PCCW.

The weak sentiment toward the deal was partly due to concerns about the limited growth prospects of the trust's underlying businesses--mainly local fixed-line and broadband services--given Hong Kong's saturated market. Such concerns, coupled with the weak markets, led PCCW, the city's dominant fixed-line operator, to price the trust's units at the bottom of its indicative price range at HK$4.53 each last week.

HKT Trust estimated the net proceeds of the IPO were HK$8.84 billion (US$1.13 billion), of which HK$7.8 billion would be used to repay the debts of its telecommunications businesses.

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